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Mind the Transformation TrapLaying the Political Foundation for Sustainable Development

Marc Saxer

November 2015

®® The transformation trap is the inability to resolve the political, social and economic

contradictions typical to transformation societies. Amidst social and political conflict, what

is necessary to graduate to the next stage of development may not be implementable

politically.

®® A progressive transformation project should therefore focus on laying the social foundation

for sustainable development through an inclusive compromise between established and

emerging classes.

®® The development narrative needs to shift from communalist patronage and identity

politics to innovation and empowerment through the provision of full capabilities for all.

®® The Good Society with full capabilities for all can bring together a broad societal coalition

to shape this Great Transformation.

Economy of Tomorrow

Table of Contents

I The Race against Time �� 1

The global window for industrialization is closing ................................................... 1

Who can win the race against time? ...................................................................... 3

II The Social and Political Challenges of Transformation �� 4

Transformation conflicts around the world ............................................................. 4

Why are the middle classes revolting? ................................................................... 5

III Escaping the Transformation Trap �� 7

What is the Transformation Trap? .......................................................................... 7

Sustainable development needs a social foundation ................................................ 8

How to build a transformative project ................................................................... 8

The Good Society with full capabilities for all ....................................................... 12

Literature �� 14

1

Marc Saxer | Mind the Transformation Trap

I The Race against Time

When newly industrializing countries reach the

middle income level, their economic growth rate

often begins to slow down. Squeezed between

low-wage competitors which make inroads

into mature industries and advanced innovator

economies, middle income countries face the

seminal challenge to quickly and disruptively

adapt their growth strategies to a changing

environment1. Gill and Kharas have described

these challenges as the Middle Income Trap2.

Others have expressed doubts that such a general

economic pattern exists3. Whatever the empirical

evidence may be, the merit of the Middle Income

Trap concept is to have highlighted some of the

challenges policy makers face when the first

phase of industrialization loses steam. In order

to graduate to the next development level,

it is argued, economies have to move up the

global skills value chain. Disruptively adapting

the growth strategies then means to overhaul

the entire business model from labour-intensive

manufacturing to innovation-driven growth.

Arguing from this narrow economic perspective,

policy recommendations tend to be technical

and market-oriented in nature4.

Development, however, is not a technical

challenge, but the outcome of societal struggles.

Transformation produces conflict between

winners and losers. The foundation for sustainable

development needs to be laid amid social, political

and cultural conflicts rocking transformation

societies. A narrow economic perspective is

therefore in danger of misunderstanding the

complexity of transformations. Consequently,

recommended policies are at risk of provoking

political backlash, aggravating social conflict

and triggering cultural resistance. Failure

to address the political, social and cultural

challenges of transformation can make

the economic growth engine stutter. The

challenges facing middle income countries

should therefore be understood as a social and

political transformation trap.

This paper will explore how deeply sustainable

economic growth is intertwined with social

and political development. Escaping this

transformation trap requires more than a new

business model, but equally the political stability

necessary to implement the disruptive policies

required to move up the value chain. This

stability can only be produced by an inclusive

compromise between the established and

emerging classes. Laying this social foundation

for sustainable development is the essential

challenge for a progressive transformation

project. The Good Society with full capabilities

for all can bring together a broad societal

coalition to shape the Great Transformations of

today.

The global window for

industrialization is closing

Rivalling schools of development economics

claim credit for East Asia’s spectacular rise.

The neoclassical school points to the centrality

of opening up the economy for trade and

foreign investment. In contrast to the inward-

looking import substitution model, Japan,

Taiwan, South Korea, Thailand, Malaysia and

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today China encouraged export as a catalyst for

disciplined resource allocation and technological

innovation5. The mercantilist school points to

the infant industry promotion straight out of the

textbooks of Alexander Hamilton and Friedrich

List6. In contrast to the laissez faire policies

promoted by many development agencies

today, the Asian Tigers used every instrument

at their disposal to nurture infant industries into

internationally competitive players7. Both sides

would agree, however, on the central role of

manufacturing for export. Forced to compete

internationally, the export sector is under pressure

to constantly increase productivity, thereby

becoming the engine for overall development8.

In the early stages of the ‘Great Transformation’,

the sharp increase in productivity is driven by

the absorption of millions of underemployed

farmhands into urban factories9. As long as this

excess labour keeps flowing, productivity can

be increased without losing the competitive

cost advantage of cheap labour. When this pool

of excess labour dries up, wages start to rise,

driving labour intensive industries on to the next

location.

With the comparative advantage of cheap labour

cost gone, the challenge for middle income

countries is then to find new sources of growth.

However, some countries continue to rely on

labour-intensive manufacturing, or nurture

industries without economic foundation. Others

either fail to tackle vulnerability to external

shocks with domestic demand, or pursue growth

strategies with natural limits, such as natural

resource or FDI driven growth10. These countries

might well find themselves in the squeeze

between low-cost competitors on the one side,

and highly productive innovators on the other.

In contrast to concepts of self-reliance or self-

sufficiency, the only way for middle income

countries is to move up the global skill and value

chain to find new markets for new products.

To facilitate this shift to a new growth model,

conventional literature recommends to invest

more in education, upgrade the infrastructure,

and diversify exports with high-technology

manufacturing and high-yield services11.

What worked so spectacularly well in East Asia

over the last decades, however, may no longer

work under rapidly shifting global conditions12.

Higher labour productivity means that less

labour can produce the same output, meaning

manufacturing creates less jobs than in the past13.

Dani Rodrik observed that in a globalized market,

manufacturing moves on as soon as wages start

to rise, leading to premature deindustrialization

in newly industrializing economies14. Even if

emerging manufacturers manage to build up a

competitive sector, global overcapacities created

by the secular stagnation in the West15, make

it questionable if the markets are deep enough

to absorb all of their goods16. Moreover, energy

and resource driven industrialization is bound

to bounce against planetary boundaries17.

Simply put, if giants like China and India

continue to expand at current rates, rising

costs for fossil energy and raw materials may

price them out of the market18. To make things

worse, manufacturing costs in many emerging

economies have almost reached parity with the

United States19. This trend is further accelerated

by a drop in manufacturing costs through digital

automation20. When cost advantages level out,

factors such as lack in quality, legal insecurity

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and local corruption become more important.

At the same time, retailers revolve their

merchandise in ever faster cycles, turning long

supply chains into a competitive disadvantage21.

Consequently, multinational manufacturers have

started to re-shore production back to the old

industrial centres22. All of this means the window

of opportunity for export-led manufacturing

growth is closing, and an alternative route to

development has not yet been discovered.

Shifting global opportunity structures turn the

struggle for development into a gigantic race

against time.

Who can win the race against time?

China’s recent economic turmoil indicates that

its export and investment driven growth model

is running out of steam. Cheap labour intensive

industries have started to move on to lower cost

neighbours23. Beijing seems determined to offset

export dependency with domestic demand, and

deliberately allows wages to increase. Following

early East Asian industrializers, Beijing’s goal is to

take technological destiny into its own hands by

aggressively moving up the global skills and value

chain. Like Japan, South Korea and Taiwan, China

has built international brands strong enough

to push toward the technological frontier. The

growth slowdown, however, will make it harder

to satisfy the hopes and needs of the growing

middle classes and urban workers. To generate

political stability for development, China needs

to compensate waning output legitimacy with

higher input legitimacy.

Southeast Asia, by contrast, followed a

less effective version of the export-driven

industrialization model. For domestic political

reasons24, Southeast Asian industrializers chose

a foreign investment driven development path,

leaving them at the mercy of multinational

corporations. The assembly of foreign goods did

not lead to technological learning25. In Thailand,

rising production cost, shortages of skilled

labour and political instability are driving foreign

investors out, leaving behind unproductive

services26. Given its chronic inability to modernize

its social and political order, Thailand looks

increasingly likely to stagnate and fall behind.

Malaysia, mired in ethno-religious strife and

patronage sleaze, hopes to revive FDI driven

growth by joining the Trans Pacific Partnership

Agreement (TPP). Even if these hopes should

materialize, it would not address the main

weakness of extractive political economies - the

lack of innovation. For Southeast Asia, the main

challenge is to build a powerful societal coalition

for inclusive and innovation-driven development.

India’s fate will depend on its ability to create

one million new jobs per month over the next

40 years27. By aggressively pushing the ‘Make

in India’ agenda, the Indian government hopes

that with the maturation of China, India could

emerge as the world’s workbench. Whether

India, given its lack of efficient governance,

modern infrastructure and skilled labour can

really attract enough investment to cash in on

its ‘demographic dividend’ is an open question.

Some critics, pointing to the flow of foreign

investment into Southeast Asian TPP signatories,

fear that India may have already ‘missed the

bus’ of manufacturing-driven growth28. Given

the bleak outlook of the world economy, central

banker Raghuram Rajan has suggested to move

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onto a domestic market driven development

path29. Others advocate for leapfrogging into a

trade-oriented service economy30. Given these

restraints on manufacturing, optimists argue that

services are the new job generation machine31.

India’s ICT boom, however, suggests that these

high-skilled tradable services do not create the

desired spill-over effects into the larger economy,

because they cannot absorb the vast majority of

low-skilled workers32. Given the complexity and

plurality of India, the challenge is how to guide

the countless subsystems onto an inclusive and

sustainable development trajectory.

II The Social and

Political Challenges of

Transformation

From an economic perspective, transformation

countries need to graduate from labour

intensive to knowledge driven growth. To escape

the squeeze between low wage competitors

and advanced innovator economies, middle

income countries need to move up the global

skills and value chain. On the policy level, this

requires heavy investment in infrastructure and

developing the skills of the workforce.

What is desirable from an economic point of view

may not be implementable politically. To unleash

the full potential of creative destruction, inclusive

institutions are needed33. In the extractive political

economies of most transformation societies,

however, innovation is not in the interest of the

few who benefit from the status quo.

Transformation conflicts around the

world

Who are those resisting change, and why? The

status quo alliance consists not only of the old

elites who try to protect their status and privilege,

but all those who fear that a rapid transformation

would turn their world upside down. Within less

than a generation, fundamental concepts such

as family, work, or the role of men and women

have undergone radical change. Some people

happily embrace new opportunities, while others

feel that the loss of the world they were born

into threatens their identities34. The fear of social

decline gives these social struggles a paranoid,

aggressive undertone. It is not a coincidence that

in times of rapid change, fascist groups frame

scapegoats for the alleged moral decline, and

resort to violent tactics to restore an imagined

golden past35. As Antonio Gramsci gloomily

remarked from his prison cell, ‘The crisis consists

precisely in the fact that the old is dying and the

new cannot be born; in this interregnum a great

variety of morbid symptoms appear.’36

Structurally, transformation crises reflect the

gap between political and social orders, and

the new social and economic realities. It is not

a coincidence that these interdependencies

make themselves felt more pronouncedly once

a country has reached the middle income level.

After several decades of industrialization, not

only have economies become more complex,

but societies have started to fragment and

pluralize37. The differentiation of lifestyles,

interests and identities erodes symbolic orders

especially in those cultures which are rooted in

conformity, unity and discipline38. Vertical political

systems informed by patrimonial cultures find

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it increasingly challenging to govern complex,

dynamic and conflict-ridden transformation

societies39. Unable to deliver to the growing

hopes, demands and needs of rapidly changing

societies, the legitimacy of the old order is

eroding. Conflicts between winners and losers of

transformation paralyse the political process and

undermine the ability to implement reforms40.

In this transformation conflict, the middle classes

play a decisive role. As long as the established

middle class sticks with the old elites, the status

quo may be upheld. If the established middle

classes make common cause with emerging

classes, change will be the likely outcome. What

motivates the middle classes?

Why are the middle classes revolting?

Over the past 15 years, middle classes have

been revolting in many transformation societies

around the world41. Starting from the Philippines

in 2000/01, there have been mass protests

in Venezuela (2001-2003), Taiwan (2004 and

2006), Ukraine (2004 and 2013), Kyrgyzstan

(2005), Thailand (2006, 2008, 2013/14),

Bangladesh (2006/07), Kenya (2007/08), Bolivia

(2008), Georgia (2003 and 2007), Lebanon

(2011), Tunisia (2010/11), Russia (2012), Egypt

(2011 and 2012/13), Turkey (2013), Brazil

(2013 and 2014), Hong Kong (2014), Malaysia

(2015) and Ecuador (2015). While the occasions

and outcomes of these protests may vary, they

are instructive to understand the nature of

transformation conflicts.

In these conflicts over the political and social

order, the logics of patronage and modern

governance overlap. In most transformation

societies, electoral politics play an ever larger, if

not always decisive role. Clever politicians have

understood that catering to the hopes and needs

of the neglected majority population is the recipe

for electoral victories. Once in power, however,

these popular leaders follow the ancient

logic of the patronage system by rewarding

supporters, protecting clients, favouring their

kin and distributing the spoils. This is why many

popular leaders turn into ‘elected autocrats’,

threatening the opposition, silencing media,

and undermining democratic institutions42. This

is why many in the established middle class feel

threatened, and take to the streets to protest

against corruption and the abuse of power.

The rage of these well-off protesters shows that

the established middle class is not satisfied with

the ‘deal’ it has been offered. To secure their

voter base, elected governments redistribute

wealth and opportunities. For social and political

reasons, it is difficult to raise the necessary

revenue to finance these programs from either

the rich or the poor, with the tax burden falling

on the backs of the middle class. As long as

the middle class feels unsafe and abused it will

resist calls for solidarity with other segments of

society43. On the other side, as long as demands

for equal opportunities are not met, the majority

population will challenge the old social order. This

protracted social conflict again scares the middle

class, which in turn starts to protest against

the demands of the ‘undeserving masses’. This

conflict over the question of ‘solidarity with

whom?’ gives a working definition of who

is considered a full member of the polity, and

who is regarded as a subaltern subject without

the same rights. In many societies, solidarity is

only expected between members of the same

6


group, class, caste or community. It is precisely

this question of the inclusion of the former

rural labourers into the polity which is at the

core of a transformation conflict. Simply put, a

transformation crisis occurs when the old social

contract has been terminated, and a new one

has not yet been concluded44.

Second, the centrality of corruption, nepotism

and populism in middle class protests points

to frustration over the patronage system.

Patronage practices seem to proliferate in times

of transformation45. In most transformation

societies, modern institutions in the Weberian

sense are weak46. As long as these modern

institutions are absent or do not function

properly, a phone call to the ‘big man’ might

still be the only way to solve everyday problems.

While the elites benefit from the patronage

system, the poor rely on it for physical survival.

The middle class considers patronage a necessity,

wrong if practised by others, but right if

useful for oneself47. So why is the middle class

protesting against these ancient governance

mechanisms when it also benefits from them?

This change in attitude may be triggered by

the deeper shift towards capitalist contractual

culture. When economic matters are governed

by contractual relationships between equals,

many ask, why then do the same people

have little or no say in public matters? Hence,

demands for accountability, transparency,

participation, and responsiveness are in fact calls

for the modernization of the polity. Accordingly,

patronage practices are reframed. The rewarding

of supporters is now demonized as ‘populism’,

favouring of kin is scourged as nepotism,

protecting of clients denounced as cronyism and

the distribution of spoils outlawed as corruption.

Corruption, in particular, is the new code for

the abuse of power by unaccountable elites. In

short, the middle class fears to be ‘robbed by

corrupt politicians who steal their money to buy

the votes of the undeserving poor with populist

projects’48. Hence, in its essence, the protests of

the middle classes are aimed at the patronage

system as the main obstacle to modernization.

This explains why good governance discourses

are gaining currency among the middle class.

Classical modernization theory would equally

expect the middle class to be the primary

drivers of democratization49. But why is it then

that the protesters from Hong Kong to Kuala

Lumpur are demanding a more inclusive and

participatory order, while their peers in Bangkok

and Cairo march for the disenfranchisement of

the ‘uneducated’ masses, and the abolition of

electoral democracy?

Again, middle class rage does not flow from

some objective class interest, but is fuelled by the

way the transformation conflict is framed in the

discourse. While it is true that extractive political

economies systematically exclude the majority

population, transformation conflicts are not

simply ‘class struggles’ between the rich and the

poor. Both the status quo as well as the change

alliance cut across all social strata and sectors.

The balance of power between those who

seek to uphold the status quo and those who

want to modernize the political and social order

depends on the ability of each side to co-opt

social groups into their struggle. This suggests

that the outcome of the transformation conflict

will not simply be a mirror function of structural

7


changes, but will also be determined by the

way the conflict is constructed in the discourse.

Transformation conflicts are rarely framed in

socio-economic terms, but often constructed

as identity conflicts between different races,

religions, gender or ethnicities. By framing the

community as threatened by another, those

who seek internal socio-economic reform can

be reined in to close ranks against the external

threat50. This means culturalist communalism

and identity politics are the ideal instruments

for all those who seek to uphold the social and

economic status quo. Contrary to historical

determinist expectations, traditional elites can

uphold the status quo against the onslaught of

capitalist globalization and social emancipation

if they can co-opt the middle classes into their

alliance by framing the conflict in cultural

essentialist terms.

As a result of these political and social

challenges, transformation societies find it

difficult to adapt the political order to the needs

of an emerging economy and pluralist society.

III Escaping the

Transformation Trap

What is the Transformation Trap?

In the race against time, emerging economies

need to outpace global headwinds by shifting

from labour-intensive to innovation-led

growth. What makes this so extremely difficult

is the interconnectedness of economic, social,

cultural and political challenges. Amidst social

and political conflicts, policies designed to move

the economy up the global skills and value chain

can prove to be difficult to implement politically.

To unleash innovation-led growth, a highly skilled

workforce is needed. To finance this investment

into human resources, the tax revenue needs

to be significantly increased. However, as long

as the middle class feels unsafe and abused, it

refuses to pick up the bill. In the absence of a

social contract which entitles all members of

society to solidarity, policies aimed at improving

the skills and physical fitness of the workforce

may be resisted. Redistributive pro poor policies

are even more likely to antagonize the middle

classes. The failure to upgrade human capital,

however, makes the economy highly vulnerable

to competitors who are either cheaper or

more productive. Rising inequality, a stuttering

economic engine, and spreading unrest may in

the long run lead to economic stagnation and

decline.

In a differentiated and mobilized society, top

down imposition of policies is more likely to

be resisted by those affected, making it more

difficult to stir development by institutional

and social engineering. Innovation cannot be

imposed, but can only flourish in a more open

and free environment. When slowing growth

rates make it more difficult to lift all boats,

building consensus for development becomes

even more difficult.

The transformation trap, in short, is not some

economic law which causes a systematic

slowdown when a country reaches middle

income level. It is the inability to resolve the

political, social and economic contradictions

typical for transformation societies.

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Sustainable development needs a

social foundation

Escaping the transformation trap is more than an

economic task, it is a seminal political challenge.

In the vertigo of change, cultural and social fears

can be exploited to stifle disruptive innovations.

Building a skilled workforce for innovation-led

growth is difficult in the absence of a social

contract which constitutes solidarity with millions

of former farmhands. Politically speaking, moving

up the value chain means to build social consensus

for creative destruction as well as redistribution.

Or, in other words, to build a stable social and

political foundation for sustainable high growth.

What is needed is a social compromise between

all classes to generate the social and political

stability needed for the modernization of the

economy and the state. Only an inclusive social

compromise can square this circle of reassuring

the established classes while integrating millions

into the polity as citizens with equal rights and

opportunities.

Historically, such a social democratic ‘New

Deal’ was concluded to overcome the Great

Depression51. In essence, social democracy

promises prosperity for all by lifting all boats. In

return for equal opportunities to fully participate

in political, social and cultural life, the majority

population accepted checks and balances

to majority rule. In return for social peace,

protection by the rule of law, good governance

and quality public goods, the middle classes pay-

rolled redistributive policies. Finally, in return

for social peace and political stability, the elites

addressed the crisis of social justice by creating

opportunities for all. It was this social democratic

compromise which helped to restore social peace

after a century of conflicts, thereby laying the

social foundation for post-war prosperity.

Of course, the historical New Deal cannot be the

blueprint for social compromises under different

political, social and cultural conditions. However,

it showed that a social compromise needs to be

more than the lowest common denominator

between opposing interests.

What is needed is a development model which

can produce the social peace and political

stability necessary for the rollercoaster ride of

transformation. To provide opportunities for all,

high GDP growth is necessary, but not sufficient.

A sustainable development model needs to

combine growth with equity, inclusiveness with

innovation and preservation with disruptive

change. The Economy of Tomorrow project,

bringing together more than 200 thinkers from

emerging Asian economies, has proposed such

a model for socially just, resilient and green

dynamic development. Building upon Amartya

Sen’s capabilities approach[1], the Economy of

Tomorrow model seeks to generate innovation-

led growth by unleashing the full creative,

entrepreneurial, and cognitive potential of all

citizens52.

How to build a transformative project

In the vertigo of transformation, especially in

highly pluralistic and decentralized polities,

social groups tend to engage in distributional

1 Amartya Sen and Martha Nussbaum name at least ten

capability clusters which empower individuals to live a Good

Life: Bodily Health; Bodily Integrity; Senses, Imagination

and Thought; Emotions; Practical Reason; Affiliation; Other

Species; Play; Control over One’s Environment.

9


conflicts. In such a fragmented political field, the

technocratic implementation of developmental

policies becomes difficult. Instead of imposing

policies onto society, it may be more promising to

change the calculus of these interests groups by

shifting the paradigm. Driven by their perceived

interests in the new paradigm, the myriads of

subsystems voluntarily start to move into a new,

common direction.

Given the rising aspirations, impatience and

anxiety in the race against time, the ‘high growth

first’ paradigm tends to dominate the political

discourse. In this paradigm, political agendas

can easily be marginalised by framing them

as ‘impediments to growth’. Labour and land

rights, environmental protection, social equality

and climate change agendas are reframed as

‘luxuries we can now ill afford’. In the ‘high

growth first’ paradigm, progressive policies are

difficult to communicate, let alone implement53.

Given the political and social challenges of

transformation societies, a ‘high growth first’

strategy is likely to end up in the transformation

trap. What is needed is a balance between

the economic, political and social dimensions

of development. A successful transformation

project therefore lays the social foundation for

sustainable development with an inclusive social

compromise.

In the current paradigm, however, not everybody

will be willing to conclude this social compromise

for development. Some are resisting change to

defend their status and privileges; others because

they feel their identities are threatened54. Hence,

the shift of the development paradigm will be

the outcome of a struggle between those who

seek to uphold the status quo, and those who

want change55. In the political economy of

change, this means change agents need to join

forces in a broad societal change coalition.

A broad societal change coalition brings

together actors from across all sectors and social

strata, including reform- minded elites. Broad

societal change coalitions successfully managed

the democratization processes in the Philippines

(People Power, 1986), South Korea (June

Democracy Movement, 1987), South Africa

(Anti-Apartheid, 1994), Indonesia (Reformasi,

1998). In pluralistic and federalist democracies

like India, broad societal coalition building is

essential to any significant reform process, let

alone major shifts of the development path.

Broad societal coalitions, however, are hard to

build on the basis of class, identity or interest. In

the here and now, social groups have different

interests and priorities. The lowest common

denominator between these interests is too

narrow to serve as a platform for a broad societal

change coalition. This is why it is difficult to scale

up isolated progressive struggles into a broad

societal struggle for change.

If coalitions based on common interests are

hard to bring together, the better way to build a

broad societal change coalition could be to start

with a discourse alliance. Instead of brokering

a transactional compromise between different

interests in the here and now, it may be more

fruitful to point to an alternative paradigm

where these interests converge. To expand the

imagination of what is possible, a practical utopia

10


needs to be envisioned56. Reimagining the future

will in turn change interpretations of the situation

today. Shifting expectations on how things will

unfold could impel actors to recalculate risk and

opportunities of their options, and redefine their

interests. In short, pointing to the convergence

of interests in an imagined future can change

the calculus of risk and opportunity in the here

and now. In other words, differences of interest

can be transcended by shifting the paradigm.

After the ‘End of History’, progressives seem to

have forgotten to use this utopian method57. In

order to give hope to those who struggle for

change today, it is imperative to fill the void of

TINA (‘There is No Alternative’) with a vision for

a better tomorrow. This is why a transformative

project needs to be more than a set of policies,

but a practical utopia which expands the

imagination beyond the constraints of day-to-

day politics.

In order to fulfil the functions of widening the

imaginary horizon (‘the Audacity of Hope’),

energizing supporters (‘Yes, we can’) and

setting the vantage point for a broad societal

alliance (the ‘Rainbow Coalition’), the practical

utopia must not be arbitrary, but a strategically

designed transformative project. To mobilize

potential supporters to join forces, its central

promise needs to be credible enough to be the

‘change you can believe in’, but transformative

enough to allow actors to look beyond their

current differences. To function as the platform

for a broad discourse alliance, the utopian

vision (‘Our Dream’) needs to be placed right

into the centre of the discourse field. Framed

in shared values and collective experiences, a

transformative political project needs to unite

good politics, good economics, and the morally

right thing to do.

In short, in order to prepare the ground for a

broad societal change coalition between key

11


constituencies, a discourse alliance needs to

shift the development paradigm. The first step in

building a discourse alliance is to analyse existing

discourse communities for commonalities

between their expectations and promises.

Second, a utopian vantage point needs to be

imagined where the promises of key, if not all,

communities will converge. This vantage point

is the new development paradigm. Third, game-

changing structural drivers need to be identified

which have the widely accepted potential to

transform the current situation. Fourth, around

these game changers, a narrative needs to be

constructed which credibly explains how society

can reach this practical utopia. To build bridges,

this change narrative needs to be framed in a

language which resonates with different discourse

communities. Fifth, a transformative political

platform needs to be constructed which reflects

the enlightened interests of key constituencies.

To be clear, this platform should not seek the

lowest common denominator between the

interests in the here and now, but describe the

convergence of redefined interests in the new

development paradigm. Sixth, transformative

practical projects need to be devised which allows

key constituencies to pursue their newly defined

interests individually. Yet, the convergence of

redefined interests in the new development

paradigm will channel these individual actions

onto a common trajectory. In the new paradigm,

changing calculations of risk and opportunity

will induce actors to change their behaviour,

and by doing so shift the opportunity structures

for other actors. Redefined interests allow for

cooperation between actors who used to be

antagonists. Based on the new interest calculus,

and encouraged by successful cooperation on

joint projects, a broad societal change coalition

can emerge out of the discourse alliance.

A good example for a geopolitical transformative

project is the Chinese ‘One Belt, One Road’

initiative. The ‘Chinese Dream’ to revive the

ancient Silk Road broadens the imagination of

what is possible for Eurasia. It is this promise to

transform the economic and political maps of

Eurasia which shifts expectations well beyond the

roads, railways, ports and bridges actually built.

At the same time, concrete commitments like

the funds provided by the Asian Infrastructure

Investment Bank (AIIB) add credibility to these

promises. A transformative project, in short,

needs to combine hardware and software to

change the calculus of actors.

Another example for a transformative project

is the ‘Green New Deal’. For decades, the

constructed dichotomy between growth and

environment doomed any attempts to shift to a

green development path. The ‘Green New Deal’

transcended this conflict of interest, and laid the

foundation for a discourse alliance. Promising to

decouple growth from the use of resources, the

‘Green Growth’ narrative built a bridge between

the environmentalist ‘climate change-‘ and

the business friendly- ‘market driven growth’

discourse communities. The promise of ‘green

jobs’ brought together the ‘green’ with the

‘inclusive growth’ discourse community. The

post-carbon discourse alliance brings together

religious leaders like the Pope with billionaires

like Bill Gates, or environmental activists with

geopolitical strategists worried about energy

12


security58. By shifting the expectations towards the

forthcoming end of the fossil age, this discourse

alliance set the ‘exit from the carbon economy’

as the new development paradigm. Based on the

new calculation of risk and opportunity, political

and market actors have started to change their

behaviour in accordance with their redefined

interests. European governments started to

legislate the exit from the carbon economy,

calling into question trillions of annual subsidies

for the fossil fuel industry. Emission targets call

into question the assumption that all fossil fuel

reserves will be consumed, triggering the Bank

of England and the German government to warn

institutional investors (who are required to invest

in secure assets only) to revaluate fossil stocks in

view of this ‘carbon bubble’59. New calculus of

interest has triggered German and Italian utilities

providers to sell off their entire conventional

power plant fleet60. In the emerging non-carbon

paradigm, former antagonists find that their

interests are converging, opening the way for a

global change coalition.

The Good Society with full

capabilities for all

What could be this vision for a better tomorrow

which a transformative project needs to promote

with the aim of transcending social and political

conflict? In order to create the basis for solidarity

between all classes, the narrative needs to shift

the focus from communalist patronage and

identity politics towards social empowerment

and economic development61.

The ‘Good Society with full capabilities for all’

offers such a powerful normative vision62. At

13


the same time, the capabilities’ narrative can be

the platform of a broad development discourse

alliance. The capabilities narrative promises to

escape the transformation trap and graduate to

the next level of development. The promise to

unleash innovation-led growth is attractive to

the ‘high growth first’ discourse community. The

focus on empowerment can be connected to the

‘equity’, ‘inclusiveness’ and ‘justice’ discourse

communities. ‘Development as freedom’ even

connects the ‘emancipation’ and ‘liberty’

discourse communities. Bringing together the

‘growth’, ‘justice’, ‘emancipation’, and ‘stability’

discourse communities, a modernization

discourse alliance can emerge.

This transformative discourse alliance needs to

shift the development paradigm from ‘high GDP

growth’ to ‘high sustainable growth’. In this

frame, progressives can make a powerful case

that the best way to achieve sustainable and

high growth is to lay a stable social foundation

with a social democratic compromise. Hence, the

progressive development frame needs to point

out that the best way to move up the skills and

value chain is to provide full capabilities for all.

Accordingly, sector-specific narratives need to

transcend false dichotomies between economic

growth and social development by framing social

development as a precondition for sustainable

high growth. For instance, in order to attract the

creative innovators for the emerging knowledge

economy, smart cities need to provide not only

the physical infrastructure, but also social peace

and cultural openness. Equally, in a post-carbon

world, sustainable high growth will depend on

the ability to decouple productivity growth from

the use of resources.

By constructing the social compromise around

the capabilities platform, a broad societal change

coalition can be built out of the development

discourse alliance. Within the new ‘high

sustainable growth’ paradigm, all constituencies

with an enlightened self-interest in modernization

need to come together. Important constituencies

for such a modernization partnership could

be elected policymakers, private investors and

entrepreneurs, the progressive middle class as

well as aspirational classes. By combining the

struggles of those who seek distributional justice

with those who want justice of recognition,

the capabilities platform can bring together the

progressive tribes. By providing opportunities for

all to unleash their full potential, the capabilities

approach combines the private sector goal

of economic innovation with the state sector

concern for political stability. The capabilities

platform reaches out to the hopes and needs of

emerging classes while at the same time offering

the middle classes quality public services in return

for their tax bills. By combining the middle class

ideal of meritocracy with the yearning of the

majority population for equal opportunities, the

capabilities approach opens the door for a social

compromise between the elites, the middle

classes and the majority population. Based

on this social compromise over capabilities, a

broad societal coalition for modernization and

development can be built.

The ‘Good Society with full capabilities for all’

makes for a powerful ideological frame for

the progressive project of shaping the Great

Transformation of today. Now it is time to define

the concrete, sector-specific transformative

projects which can make ‘full capabilities for all’

a reality.

14


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About the Author

Marc Saxer is the Resident Representative

of Friedrich-Ebert-Stiftung in India, and

the Coordinator of the Asia-Europe

Economy of Tomorrow project.

Friedrich-Ebert-Stiftung

India Office

K-70-B, Hauz Khas Enclave,

New Delhi-110016

India

Responsible

Marc Saxer, Resident Representative

Tel: + 91 11 26561361-64

Fax: + 91 11 26564691

Email: [email protected]

www2.fes-asia.org/economy-tomorrow

Disclaimer:

The views expressed in this publication are

not necessarily those of the Friedrich-Ebert-

Stiftung or of the organization for which the

author works.

Commercial use of all media published by the

Friedrich-Ebert-Stiftung (FES) is not permitted

without written consent of the FES.

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